Washington suffers most regressive tax system in U.S.

Originally published March 3, 2015 at 10:18 am
Updated March 3, 2015 at 10:35 am

The nation's unfairest tax system is here in Washington, adding to inequality and hurting state revenues. But voters don't seem inclined to fix it.

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In the latest Who Pays? report by the non-partisan Institute on Taxation and Economic Policy, Washington state has “by far” the most regressive tax system in the nation. Poor residents here pay 16.8 percent of family income in state and local taxes while the wealthiest 1 percent pay only 2.4 percent.

By comparison, the percentage spread in Alaska is 7 percent and 2.5 percent; Idaho, 8.5 percent and 6.4 percent, and Oregon, 8.1 percent and 6.5 percent.

The study finds that every state’s tax system is unfair, with poorer residents paying more:

On average, the poorest 20 percent of taxpayers nationwide pay more than double the effective tax rate paid by the richest 1 percent of households (10.9 percent v. 5.4 percent).

It’s a myth that the poor get a free ride because most don’t pay federal taxes. Not only do they pay state and local taxes, but their taxes are a much bigger share of their limited income. The problem is most pronounced in the institute’s Terrible Ten: In addition to Washington, there’s Indiana, Kansas, Arizona, Tennessee, Pennsylvania, Illinois, South Dakota, Texas and Florida.

Washington’s biggest problem is the lack of a personal income tax, something the voters have repeatedly refused to implement. It has a high reliance on sales taxes compared with other states, which eats up a larger share of poorer people’s incomes. Also, the report notes, it fails to provide a property tax “circuit breaker” for non-elderly low-income taxpayers.

Meanwhile, the overall tax system remains designed for the state that existed in the 1950s and before, heavy on manufacturing and extraction industries, even though Washington’s population has exploded and become much more urban, creating expanded need for infrastructure and government services. The status quo adds to inequality, as well as hurting state revenues, particularly during downturns.